Demand for High-Yield Debt Revives

Claire’s Stores, Chesapeake Energy sell bonds as borrowing costs tumble.

Claire’s Stores Inc., the jewelry retailer owned by Apollo Global Management LLC, and Chesapeake Energy Corp. are offering bonds, as investor appetite for high-yield debt soars to the highest level since June.

Claire’s, graded Caa2 by Moody’s Investors Service and B- by Standard & Poor’s, sold $400 million of 9 percent, seven-year notes, according to data compiled by Bloomberg. Chesapeake, rated three steps below investment grade at Moody’s, may issue $1 billion of seven-year debt at a yield of about 7 percent today, said a person with knowledge of the offering, who declined to be identified because terms aren’t set.

Borrowing costs for high-yield, high-risk companies have tumbled to the lowest since August on signs the economic recovery is gaining traction and as the Federal Reserve pledges to hold interest rates at record lows through at least late 2014. Investors have poured more than $1.35 billion into junk mutual funds for five weeks, JPMorgan Chase & Co. analysts wrote in a Feb. 10 note, helping the companies sell $44.3 billion of debt this year, the busiest two months since May and June.

“The high-yield makeup is better quality than we’ve ever seen it,” Margie Patel, a fund manager at Wells Fargo & Co., said in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. Junk borrowers are being “very prudent about their balance sheets and very opportunistic,” she said.

Yields on debt rated CCC and lower reached 12.65 percent on Feb. 8, the lowest since Aug. 17, according to Bank of America Merrill Lynch index data. Endeavour International Corp., a Houston-based oil and gas exploration company, sold $500 million of 12 percent, seven-year notes today rated Caa1 by Moody’s, Bloomberg data show.

Claire’s is seeking to replace a revolving line of credit by 2013 and refinance $1.2 billion of term loans due in 2014, Gimme Credit LLC analyst Evan Mann wrote in a Feb. 10 note.

The notes from Claire’s will be graded B3 by Moody’s, according to a note today.

Despite the fashion-stores company’s slide in credit quality, from an overall rating of B3 assigned in 2007, the 9 percent yield represents the second-lowest coupon on record for Claire’s after 8.875 percent debt issued in July, according to data compiled by Bloomberg.


High-Yield Rally

“People are more comfortable with CCCs now than a month ago because of the rally in the market,” said Marc Gross, a money manager at RS Investments in New York who oversees $3 billion of fixed-income funds. That’s helping a company like Hoffman Estates, Illinois-based Claire’s sell debt, he said.

Companies graded CCC have accounted for 7.2 percent of bond sales this year, compared with 10.4 percent in 2011, according to the Feb. 10 note from JPMorgan.

Chesapeake, based in Oklahoma City, is marketing debt as it plans to raise as much as $12 billion this year from asset sales and joint ventures in an effort to generate enough cash to meet drilling expenses. Proceeds from the bond sale, the natural-gas extractor’s second in a five-month period, will be used to pay back bank borrowings and for general corporate purposes, the company said today in a statement.

Yields on all speculative-grade bonds tumbled to 7.76 percent on Feb. 9, the lowest since Aug. 3, before rising to 7.78 percent on Feb. 10, Bank of America Merrill Lynch index data show. Relative yields fell to 626 basis points on Feb. 9, the lowest since Aug. 5, the index data show.

High-yield, high-risk, or junk, debt is rated below Baa3 by Moody’s and lower than BBB- at S&P.

CityCenter Holdings LLC, the joint venture of MGM Resorts International and Dubai World, priced a $240 million add-on to an issue of 7.625 percent first-lien senior secured notes at 104.75 cents on the dollar, the company said in a statement distributed by PR Newswire.



Bloomberg News


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